1.(Cost of equity) In the spring of 2015, the Brille Corporation was involved in issuing new common stock at a market price of $35. Dividends last year were $1.50 and are expected to grow at an annual rate of 5 percent forever. Flotation costs will be 6 percent of market price. What is Brille's cost of equity for the new issue?

2.(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 7 percent annual interest and matures in 15 years. Investors are willing to pay $850 for the bond. Flotation costs will be 3 percent of market value. The company is in a 30 percent marginal tax bracket. What will be the firm's after-tax cost of debt on the bond?

3.(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return.

Compute the market value of the bonds.

What will the net price be if flotation costs are 10.5 percent of the market price?

How many bonds will the firm have to issue to receive the needed funds?

What is the firm's after-tax cost of debt if its marginal tax rate is 34 percent?

4. (Weighted average cost of capital) Crawford Enterprises is a publicly held company located in Arnold, Kansas. The firm began as a small tool and die shop but grew over its 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of 2009 the firm's balance sheet appeared as follows:

Cash $ 540,000 Accounts receivable 4,580,000 Inventories 7,400,000 Long-term debt $12,590,000 Net property, plant, and equipment 18,955,000 Common equity 18,885,000 Total assets $31,475,000 Total debt and equity $31,475,000 At present, the firm's common stock is selling for a price equal to its book value, and the firm's bonds are selling at par. Crawford's managers estimate that the market requires a 15 percent return on its common stock, the firm's bonds command a yield to maturity of 8 percent, and the firm faces a tax rate of 34 percent.

a.What is Crawford's weighted average cost of capital?

b.If Crawford's stock price were to rise such that it sold at 1.5 times book value, causing the cost of equity to fall to 13 percent, what would the firm's cost of capital be (assuming the cost of debt and tax rate do not change)?

5. (Weighted average cost of capital) The capital structure for the Carion Corporation is provided here. The company plans to maintain its debt structure in the future. If the firm has a 5.5 percent after-tax cost of debt, a 13.5 percent cost of preferred stock, and an 18 percent cost of common stock, what is the firm's weighted average cost of capital?

CAPITAL STRUCTURE($000) Bonds $1,083 Preferred stock 268 Common stock 3,681 $5,032